Another lesson that is not likely to be learned in Washington, or in Baton Rouge: Government is a lousy venture capitalist.
Well, “lousy” is a milder version of the earthier description offered by economist Lawrence Summers, a former secretary of the U.S. Treasury.
It has always been thus, since Frederick the Great sank his kingdom’s money into building Prussian silkworm farms in the 18th century. Today, it is economic development incentives to chosen firms, and loan guarantees for “green” enterprises that the government promotes.
The latest example is Fisker, a plan for a company built on government guarantees with the goal of building luxury battery-powered cars. It’s gone bust, even with the blessing of renowned capitalist Vice President Joe Biden at a Delaware plant site in 2009. The Washington Post reports that the company is nearly bankrupt and taxpayers are on the hook for $171 million, at last count.
These deals are promoted, usually, not for corrupt motives but with the best of intentions — in Fisker’s case, to provide more environmentally friendly cars. But the bottom line was expressed by Charles Lane in the Post: “Government can efficiently affect energy usage through fuel taxes and basic research. When it intervenes on behalf of specific technologies and specific companies, however, bad things happen — resource misallocation, windfall-seeking, even, sometimes, corruption.”
Government checks to private enterprises are now a staple of what is called “economic development.” For decades, government aid was limited to providing basic sorts of infrastructure assistance to new industries, such as a city building a new road for a plant, or the state expanding docks at a port. Now, every potential business — indeed, many existing businesses — have hands out for loan guarantees or outright payments.
In those cases, the government is still picking winners, giving lavish direct payments to companies that may or may not have a successful market to operate in for the long term. As with Fisker, the government is picking winners, trying to choose wisely in industries that are simply too complex and too subject to change in a dynamic economy for government officials to comprehend. And certainly too complex to invest the taxpayers’ money in.
The hubris of governments spending the taxpayers’ money is not confined to Democrats, although the Fisker case is one on their watch. When Republicans are in power, they are subject to the same temptations.
A principled conservative — are you listening, Gov. Bobby Jindal? — would reject all calls for direct government aid to private-sector companies.